it won't make a difference because they will lose the difference to taxed" was something one of my co-workers parroted from their drive in listening to yell radio.
They also were under the idea that minimum wage earners are "tax exempt".
Between calls, I dug up the numbers and while they did prove him wrong as expected, the numbers were not what even I expected.
More after the squiggle.
People earning minimum wage are not "tax exempt". Every dollar you earn is taxed at 7.45% for Social Security. The first $6,100 (for single) earned is not taxed as it is the "standard deduction" you take off your income before Fed income taxes start, then you pay 10% on income between $6,101 and $8,965, 15% on income from $8,966 to $36,000.
So currently a person working full time at minimum wage is earning $15,080 which they pay $1,123 in FICA/Medicare taxes. They then pay 10% on 2,864 of income ($286), then 15% on $6,114 of income ($917). So a minimum wage earner pays $2,326 a year on $15,080 of income under the current system.
IF the person has a family they are trying to support their standard deduction is higher, ($8,950 single parent/ $12,200 married joint file) which will lower the Income tax bill but not the FICA (Social Security) tax. (Tax rates are the same 10%, 15% just shifted higher)
IF they also have kids, they can get the Earned Income Tax Credit. If they earn less than $36,760 and have one kid they can receive a credit of $3,250. This is applied to their income tax due. As you can see, this credit is more than what they paid in a year as a single person. ($2,326 vs $3,250 = +$924) They get a refund of $924. (If they don't have a kid the tax credit is $487) (giving them an effective wage of $16,004 a year.)
If minimum wage was increased to, say $12 an hour, or $24,960 a year (40 hours a week, 52 weeks a year, no vacation or sick time). They would still get the same standard deduction, same tax rates. $1859 FICA, $286 for the 10% rate, $1,483 on $9893 of income at 15%. (again a single person.) Total taxes of $3628.
The Earned Income Tax Credit would still cover $3,250 if it was a single parent with one kid. So a tax of $379 would not be refunded. Giving them an effective wage of $24,581
This is only for Fed taxes, state and local taxes, sales taxes, property taxes, etc are not looked at.
They are not tax exempt, the current minimum wage worker pays taxes, but can get a tax credit. Higher wages would increase the actual taxes collected and at $24,000 a year for a single parent, reduces what welfare programs they qualify for. (lower food stamps, less utility assistances and cash support. Won't change medicaid and Section 8 aid)
So they will "pay more" in taxes, $400 but take home $8,000 more a year.
The EITC for a married family with three or more kids is $6,044 up to an income of $51,567. (a $24 an hour job).
Some want to reduce or end the EITC now, not even if the minimum wage goes up. To get the EITC you have to earn some income, i.e. have a job. This is not "giving money to lazy people", but is a way to reduce the taxes of people at the lower income range.
Even still, changing or getting rid of the EITC but increasing the minimum wage to $12 would still benefit the worker. They would pay $1,302 more in taxes than at $7.25 but would have an increase in their total income: $21,332 vs $12,754. I don't see anyone saying "it is not worth working because they will just take it all in taxes."